The retail sector is staging a solid rebound as inflationary pressures continue to ease, thanks to the higher demand for goods. Retail sales increased in September once again, which definitely is a good sign ahead of the all-important holiday sales.

The holiday season, which typically starts on Nov 1 and runs through Dec 24, is expected to see a solid jump in sales, driven by robust e-commerce spending. Given this scenario, investing in retail stocks with a strong online presence like Amazon.com, Inc. (AMZN Quick QuoteAMZN - Free Report) , GameStop Corp. (GME Quick QuoteGME - Free Report) , Nordstrom, Inc. (JWN Quick QuoteJWN - Free Report) , Walmart, Inc. (WMT Quick QuoteWMT - Free Report) and American Eagle Outfitters, Inc. (AEO Quick QuoteAEO - Free Report) would be ideal.

Holiday Sales Projected to Grow

Retail sales, excluding automobiles are expected to rise 3.7% year over year this time, according to the latest Mastercard SpendingPulse.

With online shopping turning into a habit for millions of Americans during the peak of the pandemic, consumers are expected to continue shopping through various channels. Online retail sales are projected to jump a robust 6.7% year over year, while in-store sales are expected to increase 2.9%.

A separate report from Adobe Analytics shows that online sales during the holiday season are projected to jump 4.8% year over year.

Also, sales are anticipated to grow at a faster pace and hit $221.8 billion between Nov 1 and Dec 31, which includes key shopping days like Cyber Monday, Thanksgiving, and Black Friday, compared to $211.7 billion recorded in 2022.

Electronics, gadgets, and gaming products are projected to be at the forefront of consumers' wish lists. Electronics sales are anticipated to rise 6% compared to 2022.

This comes as the latest report from the Commerce Department showed that retail sales jumped a solid 0.7% month over month in September, totaling $704.9 billion.

Core retail sales, which strips out sales at auto dealers, mobile homes, tobacco stores, and gas stations, rose 0.6% month over month. E-commerce sales rose by 1% in September, following a 0.4% increase in the previous month.

Since March 2022, the Federal Reserve has raised interest rates by 525 basis points, taking its benchmark policy rate to the range of 5.25-5.5%. This aggressive rate hike approach has led to a significant reduction in inflation over the past 15 months.

Easing inflation led the Federal Reserve to keep its policy rate unaltered in its September FOMC meeting. Additionally, it has indicated a potential 25 basis point interest rate hike in the future.

Market participants are optimistic that the Fed might conclude its rate hike campaign after this, which is promising news for the retail and discretionary sectors as the holiday season approaches.

Stocks to Watch

Given the encouraging economic environment and increase in retail sales, it would be prudent for savvy investors to consider betting on retail stocks that stand to benefit directly from these favorable conditions.We have chosen five such stocks.

Amazon.com, Inc. is one of the largest e-commerce providers, with sprawling operations in North America and across the globe. AMZN’s online retail business revolves around the Prime program, well supported by the company’s massive distribution network. Further, the Whole Foods Market acquisition helped Amazon establish its footprint in the physical grocery supermarket space.

Amazon.com’sexpected earnings growth rate for the current year is 215.5%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 60 days. AMZN presently carries a Zacks Rank # (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

GameStop Corp. is the world's largest video game retailer. GME offers the best selection of new and pre-owned video gaming consoles, accessories and video game titles, in both physical and digital formats. Through all its channels, GameStop sells various types of digital products, including downloadable content, network points cards, prepaid digital, prepaid subscription cards and digitally downloadable software as well as collectible products.

GameStop’s expected earnings growth rate for the current year is 88.2%. The Zacks Consensus Estimate for current-year earnings has improved 64.7% over the past 60 days. GME presently sports a Zacks Rank #1.

Nordstrom, Inc. is a leading fashion specialty retailer in the United States. JWN offers an extensive selection of both branded and private-label merchandise, which are positioned in the upscale segment of the industry. Nordstrom offers high-quality apparel, shoes, cosmetics and related accessories for men, women, young adults and children through a variety of channels.

Nordstrom’s expected earnings growth rate for the current year is 20.7%. The Zacks Consensus Estimate for current-year earnings has improved 2% over the past 60 days. JWN currently has a Zacks Rank #3.

Walmart has evolved from just being a traditional brick-and-mortar retailer into an omnichannel player. WMT’s product offerings include almost everything from grocery to cosmetics, electronics to stationery, home furnishings to health and wellness products, and apparel to entertainment products, to name a few.

Walmart’s expected earnings growth rate for the current year is 2.2%. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the past 60 days. WMT presently carries a Zacks Rank #2.

American Eagle Outfitters, Inc. is a specialty retailer of casual apparel, accessories and footwear for men and women aged 15-25 years. AEO, along with its subsidiaries, engages in the designing and marketing of casual clothing. American Eagle Outfitters’ assortment includes jeans, cargo pants, graphic T-shirts as well as a range of accessories, outerwear and footwear.

American Eagle Outfitters’ expected earnings growth rate for the current year is 33%. The Zacks Consensus Estimate for current-year earnings has improved 22.9% over the past 60 days. AEO presently sports a Zacks Rank #1.